Monday, September 1, 2008

"Declaring your In-Dependants"

So you are filing your tax returns and are unsure how to fill out the "dependants" portion on your returns. Here are some helpful hints to let you know what a dependant is and can they be claimed on your return. First of all, a dependant is a person other than the taxpayer or spouse who entitles the taxpayer to claim a dependant exemption. Each dependant decreases the income subject to tax by a set amount for each tax year. For example, a dependant exemption for 2007 was $3400 so a taxpayer with two children could reduce their taxable income by $6800. A taxpayer cannot claim a dependant exemption on any person who can be (or has been) claimed by another person. So if there are children involved who can be claimed by another taxpayer make sure you understand who is claiming the exemption because it can cost you time and money later for filing a child on your return as a dependant after another taxpayer claims the same child. Unless it is court ordered for one taxpayer to receive the credit over another, the credit will go to whoever files the return first. The other taxpayer will be subject to an adjusted tax return resulting in penalties and interest on the principle debt owed from the year for which the exemption was filed. This can cause some real headaches later for the taxpayer who discovers they now owe the IRS money due to incorrect information given to them on a tax return.

If you want to know how to "Pass the Test" on whether you can claim an individual as a dependant there are several questions you can ask yourself in order to figure out if a person qualifies. Please make sure you understand these guidelines before you file. There are several tests available to help clarify your situation including the relationship test, age test, and residency test among others. These can clarify specific points so you know whether or not a person qualifies as a dependant on your return or if you are sending incorrect information to the IRS. Make sure you know the difference.

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